Rental Agreement between company and director

[Scarface]

Hello all,

I've searched the forum but I can't really find a definitive answer on Rental Agreements between contractors/personal service companies and the employees inside them. I have emailed my accountant and he's come back with a discouraging response. I'd welcome anyone's opinion before I go back to them

About me

• I am the sole shareholder and employee of the company
• I personally rent an apartment from a landlord (i.e. My name is on the Tenancy Agreement and not the company)
• The office room is used almost exclusively for business purposes (90% of the time) and the kitchen is used a significant amount of the time too for business (approx 25%)

I understand that sole traders can claim rent as an out of pocket expense but as a company director and employee I cannot. However I assume there is scope to draw up an agreement between the company and me. Given that I work from home the majority of the time I think it would be legitimate and fair for me to set up a rental agreement between the company and I to reimburse me for expenses I incur personally. I understand the total needs to be based on floor space and fair market rentals and that it needs to be OK'd by the landlord.

I have found some evidence that there is scope to write up this rental agreement (see links below)

I emailed my accountant with my suggestion and also asked if that the rental income I receive personally would not be taxable for up £7,500 because of the Rent a Room scheme details. He's poured cold water on both suggestions.

I have pasted their response below. It would be great if anyone could let me know their thoughts.

• Is the accountant overly cautious and it is not possible to sublet to the company even if the landlords permission is given?
• If the above is possible, is it definitely not possible for a me as individual to claim rent a room tax relief for a sub-letted room?
• If both of the above are not possible I suspect the only option is to get the company's name on the Tenancy Agreement. Is this also 'aggressive' tax avoidance for personal service companies in the eyes of HMRC?
• Given that I have barely claimed for any expenses in prior years will HMRC be alarmed if they see a sudden spike in year on year expenses?

Companies cannot claim for Rent a Room scheme nor individual can claim it as rental to a company. This is strictly if you rent a room in your home to a lodger, first £7500 in rent received is tax free and if more that this is received, the excess is taxable.

Rental agreements with own limited company are aggressive kind of tax claims and must be done very carefully in order not to get in trouble. This could possibly work with owned property but not so much with rental property. Your landlord certainly would not allow you to sublet their property or to run any kind of business from their premises. This would probably invalidate their building insurance and who knows what therefore you need to be very careful with this. Rental income must be declared on self assessment tax return.Rent charged should be based on market rental rates not the expenditure.

[WTFH]

So, you rent an apartment and you're currently working from home.

Your accountant is correct in their advice.
You could claim £6 per week, that's the rules

But let's look at what you say:
You work on your own.
You claim you use the kitchen 25% of the time for business use. That would mean you work from the kitchen 6 hours per day, i.e. 42 hours per week.
I doubt it.

If you have an office space that you use, which is dedicated as office space, then that would be the part of your home you use for work. You can't claim the kitchen, or bathroom, just cause you might go in there during your working day. That's not how it works.

Next there's the idea of you sub-letting your office from you to your business. First of all, you'd need to check with your landlord's agreement on sub-letting. Your (and his) insurance might well not cover it.
Then there's what you could sub-let. That would be the office space. It would have to be at a "reasonable" rate. Let's say you have a 75m² flat and your office is 7.5m². The reasonable rate would be 1/10th (size) of 40/168 (hours) of your weekly rent. That's about 2.4%. IF your landlord allowed you to sublet.

Stick to £6 a week.

[northernladuk]

Where is your limited company registered to? If it's the flat is the landlord aware?

If you are subletting office space then you'd be carrying out a trade from the property which most tenancy agreements don't allow. The lease on the flats may not either. Then there is insurance yadda yadda

Claim the £6.

[wattaj]

Claim the £6.

^^ This.

[Scarface]

Thanks for you response.

From my research I have seen some advocate (1) basing costs on floor usage only (which is where I took my calculations from) and (2) other where its floor usage * days used and (3) floor usage * time usage (like you're suggesting). Unfortunately I haven't seen anything on the HRMC site that specifies a formula so its all very subjective. The formula I suggested using was the more aggressive one admittedly after reading this article which suggested to me this calculation was plausible: How do I calculate my working from home expenses? - FreeAgent

Secondly, I have checked with my landlord and am awaiting a response. I'd be curious what your thoughts would be if the landlord approves the request.

So, you rent an apartment and you're currently working from home.

Your accountant is correct in their advice.
You could claim £6 per week, that's the rules

But let's look at what you say:
You work on your own.
You claim you use the kitchen 25% of the time for business use. That would mean you work from the kitchen 6 hours per day, i.e. 42 hours per week.
I doubt it.

If you have an office space that you use, which is dedicated as office space, then that would be the part of your home you use for work. You can't claim the kitchen, or bathroom, just cause you might go in there during your working day. That's not how it works.

Next there's the idea of you sub-letting your office from you to your business. First of all, you'd need to check with your landlord's agreement on sub-letting. Your (and his) insurance might well not cover it.
Then there's what you could sub-let. That would be the office space. It would have to be at a "reasonable" rate. Let's say you have a 75m² flat and your office is 7.5m². The reasonable rate would be 1/10th (size) of 40/168 (hours) of your weekly rent. That's about 2.4%. IF your landlord allowed you to sublet.

Stick to £6 a week.

[Scarface]

Currently its registered in the Accountant's office.

The Tenancy Agreement currently prohibits businesses to be registered at the property. However I assume that's a standard clause in the contract to protect them from a business opening which gets a lot of customers in the house causing a lot of wear and tear, using excessive water, eletricity etc. An IT contractor would pose few of these issues. I appreciate there would be ramifications for insurance though so I have asked the landlord if he sees any issues with me registering the business here.

Where is your limited company registered to? If it's the flat is the landlord aware?

If you are subletting office space then you'd be carrying out a trade from the property which most tenancy agreements don't allow. The lease on the flats may not either. Then there is insurance yadda yadda

Claim the £6.

[northernladuk]

Currently its registered in the Accountant's office.

The Tenancy Agreement currently prohibits businesses to be registered at the property. However I assume that's a standard clause in the contract to protect them from a business opening which gets a lot of customers in the house causing a lot of wear and tear, using excessive water, eletricity etc. An IT contractor would pose few of these issues. I appreciate there would be ramifications for insurance though so I have asked the landlord if he sees any issues with me registering the business here.

I am sure there are many other legal reasons for it as well. All of which are a pain in the arse to the landlord and are of no benefit so most will say no. I won't let my tenants open one or having anything to do with this. It can only go wrong.

Could you post your comments after you've quoted it. Difficult to see the context if you answer first before telling us which post you are replying to.

[northernladuk]

Here is a decent article on it...

A contractor’s home is his office - Contractor Weekly

You say apartment so I expect it isn't large either. To be claiming you rent out a sizeable percentage of where you live as well just make it sound like you are taking the piss when HMRC come calling.

You also admit it's not dedicated and you can't claim anything for the kitchen so you are flying a bit close to the wind here no?

Claim the £6

[wattaj]

...Claim the £6

"But, but, but £6 is A LOT LESS that the £7,500 that I WANT TO CLAIM! I'm going to keep searching until I find the answer that I want..."

Or some-such other whiny excuse.

[Scarface]

"But, but, but £6 is A LOT LESS that the £7,500 that I WANT TO CLAIM! I'm going to keep searching until I find the answer that I want..."

Or some-such other whiny excuse.

I've never said I was planning on claiming £7,500. Appreciate the whiny response though